Policymakers are at risk of significantly mischaracterizing the causes of the housing crisis, observers say
Governments at all levels might only end up exacerbating the barriers to borrowing and home buying if they focus on further taxation as the solution to the housing crisis, according to two former government advisers.
Ken Boessenkool, who has been involved in previous provincial and federal Conservative platforms, and Mike Moffatt, who worked as a former economic adviser to Liberal Leader Justin Trudeau, said that Canadian policymakers might actually do more harm than good if they mischaracterize the problem and choose misplaced solutions.
“More and cheaper and speculative money is an important part of the story, but it is not the whole story; it may not even be the most important story,” Boessenkool and Moffatt wrote in a recent contribution to The Globe and Mail.
“Hot-money explanations alone cannot explain why the price of a single-detached home is up more than 60% over the past two years in Ontario cities from Barrie to London, but has increased by only 20% in Winnipeg, for instance.”
Read more: What's impacting housing affordability in Canada?
Aside from predating the COVID-19 pandemic, Canada’s housing woes tend to vary from region to region, requiring a nuanced approach rather than a one-size-fits-all solution, Boessenkool and Moffatt said.
“Many regions of Canada, particularly southern Ontario and the lower mainland in BC, are not building enough family-sized homes to keep up with population growth,” they said.
The duo cited Ontario’s situation as emblematic of the problem, with its population having increased by nearly 950,000 over the past five years, but only 40,000 new homes having been completed between this duration and the previous five-year period.
This combination of speculation and lack of inventory is the major contributor to rapid price growth in the most in-demand Canadian markets, “but governments have by and large simply focused on the demand side of the ledger – with tax-free RRSP withdrawals, or first-time homebuyer tax credits, or a First Home Savings Account,” Boessenkool and Moffatt said. “That will not fix the core housing issues … that were apparent before the pandemic.”
Find out how to minimize tax on RRSP withdrawals and how much those taxes will cost in this article.
Instead, federal authorities should consider devolving the problem to lower-level governments, who are much better placed to assess problems and devise effective responses, it was suggested.
“Our housing crisis is not a national problem that will be solved by making it easier for young people (or anyone else) to buy homes,” Boessenkool and Moffatt said. “[It] can only be solved by building more homes in places where they are in short supply, and by helping people get to where they are not.”
